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NEW YORK (CNN/Money) -
Former WorldCom CEO Bernard Ebbers, facing life in prison for his role in an $11 billion accounting scandal at the former telecommunications giant, has agreed to give up most of his assets and to pay $5 million in cash to investors burned by the largest U.S. bankruptcy in history.
Legal experts said Ebbers, anxious for a lighter sentence, is trying to show the judge due to sentence him in two weeks that he's making amends. Ebbers was convicted in March on 9 felony counts, including securities fraud and filing false statements with securities regulators.
Ebbers' assets, valued at $25 million to $40 million, will be sold and their cash proceeds split between WorldCom shareholders and MCI, formerly WorldCom, according to prosecutors and WorldCom shareholder representatives who announced their deal with Ebbers, 63, on Thursday morning.
With the cash component, the deal is worth as much as $45 million, a pittance compared to the billions investors lost when the WorldCom scandal erupted three years ago.
The settlement is symbolic nonetheless.
Ebbers' assets include his mansion in Clinton, Miss., a potential income tax refund worth millions, and his stake in numerous businesses, including a trucking company, marina, golf course, hotel and other real estate ventures.
The holdings represent "substantially all" of Ebbers' assets, according to prosecutors. Ebbers was allowed to keep a smaller house for his wife and enough money to pay her a "modest" living allowance. He was also allowed to pay his lawyers and to make good on a $450,000 settlement reached with WorldCom employees.
Ebbers' family must vacate the Mississippi house no later than October 31.
Under terms of the deal, which is subject to court approval, Ebbers must pay the $5 million cash fine and the $450,000 employee settlement before his July 13 sentencing, according to a lawyer for WorldCom investors.
The deal essentially requires Ebbers "to give everything he has over to the victims of his crime," said Sean Coffey, who represents WorldCom investors in a class-action lawsuit. He said the deal also eliminates the risk that shareholders would lose their claims should Ebbers file for bankruptcy.
Reid Weingarten, a lawyer for Ebbers, did not return a call seeking comment.
But Jacob Frenkel, a former prosecutor, called Ebbers' forfeiture "a desperate move made with the hope of eliciting some sympathy from the court to permit him to spend some part of the remainder of his life outside of jail."
Frenkel, a partner in the Maryland law firm Shulman, Rogers, Gandal, Pordy & Eckler, said Ebbers' gesture is a sign of the times. Until a few years ago, executives convicted of corporate crimes never went to prison for very long.
But that was before a series of scandals hit corporate America starting in late 2001 and potential prison terms for crimes committed in the executive suite were hiked.
Ebbers is looking at up to 85 years behind bars.
Compared to $6.8 billion, a symbolic victory
New York State Comptroller Alan Hevesi, on behalf of the lead WorldCom plaintiff the New York State Common Retirement Fund, said the deal announced Thursday is unprecedented. Federal prosecutors were looking to seize Ebbers' assets as part of his sentencing. Cash or other assets recovered in criminal cases have gone to the U.S. Treasury.
In this case, however, government lawyers agreed to give the money to WorldCom shareholders and MCI (Research). By doing so, the government also avoided a potential quagmire: there are 4 million potential WorldCom victims, according to Coffey, the lead lawyer for WorldCom shareholders.
Said Hevesi, "This is an important step in conveying the message that the crimes committed by Mr. Ebbers and others in a series of scandals will be responded to very, very forcefully."
The deal calls for WorldCom investors to receive 75 percent of the sale proceeds. MCI, which has hundreds of millions of dollars in outstanding loans to Ebbers, will pocket the remainder. The one exception is Ebbers' biggest asset, a massive tract of land that he used as collateral for his MCI loans. MCI will receive two-thirds of that sale, with the rest going to investors.
As a result, Hevesi estimated that as much as $33 million of Ebbers' worth will go back to WorldCom shareholders.
In all, the WorldCom investor litigation has resulted in more than $6 billion worth of settlements, making the litigation the largest shareholder recovery in history. In 2003, WorldCom also agreed to a settlement with federal regulators valued at $750 million.
Three defendants remain in the case, including former WorldCom chief financial officer Scott Sullivan.
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